Sheinbaum’s Mexico Is Ground Zero for Trump’s Threatened Trade War

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(Bloomberg) — Weeks after starting her government, Mexican President Claudia Sheinbaum is giving signs that she will side with the United States on China, if she has to choose.

Whether that is enough to prevent Donald Trump from overwhelming it with the punitive tariffs he threatened in his second term is another matter.

As Sheinbaum attends the G20 summit in Brazil, her fellow leaders will be eager to learn about the new president and her role on the front line of what could turn into a global trade war.

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She is the first Mexican leader to appear at the G20 summit since 2018 – when Trump was last in power – after her famous predecessor, Andrés Manuel López Orbador, who hates travel, used to send his foreign minister instead.

Her schedule in Brazil suggests two things: she does not want to get on the wrong side of Trump, and she avoids publicly taking sides. There are one-on-one meetings with eight leaders, but neither Joe Biden nor Xi Jinping are among them, although the Mexican foreign minister said China had requested a meeting.

Sheinbaum walks a fine line in showing her willingness to cooperate with the United States on topics such as reducing immigration and calming relations with China, without seeming like a pushover. But the truth is that Washington is Mexico’s number one trading partner, with Beijing far behind it.

This contrasts with the G20 host, President Luiz Inacio Lula da Silva, who has yet to make contact with Trump and opens the door to a rush of Chinese investment in Brazil. Brazil’s trade with China is already more than double the size of its trade with the United States.

Since the summer, Sheinbaum’s government has been talking about the need to reduce Chinese imports, which represent about 20% of the national total. Finance Minister Rogelio Ramirez de la O said that if North America produced 10% of what it currently imports from China, Mexico’s economy would grow by 1.4% and the US GDP by 0.8%. He said job gains would be 600,000 in the United States, 560,000 in Mexico, and 150,000 in Canada.

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Economy Minister Marcelo Ebrard’s office is working with major companies that import from China – including electronics maker Foxconn, chipmaker Intel, automakers General Motors and Stellantis NV, and logistics group DHL – to identify products that can be manufactured in Mexico. . According to what was reported by the local newspaper Reforma. Reforma said the plan would also seek to block the entry of Malaysian, Vietnamese and Taiwanese goods.

The question is whether Trump views these initiatives as an outstretched hand or as part of Mexico’s response to the Biden administration’s current line on China.

“The increasing pressure exerted by the United States in Mexico against China generates a lot of uncertainty for investments already in place,” said Enrique Dussel Peters, coordinator of the Center for Sino-Mexican Studies at the National Autonomous University of Mexico. “In the short term, companies will face enormous problems replacing Chinese goods and parts.”

Trump threatened to turn the scheduled 2026 review of the US-Mexico-Canada trade agreement into an outright renegotiation, and impose additional tariffs on Mexico. The agreement and its predecessor, NAFTA, were a boon to Mexico’s manufacturing sector, which now employs about 5 million people. But Trump wants to see Mexico close its doors to Chinese automakers that might export to the United States.

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Machinery giant Deere & Co. has threatened to impose tariffs if it moves its factory to Mexico, potentially derailing an “insider” operation that promised to bring millions of investment dollars to Mexico. Ebrard, who was secretary of state during Trump’s first term and will lead a review of the US-Mexico-Canada Agreement, said this would be a lose-lose situation, saying the tariffs would hurt US companies operating in Mexico, especially in the auto industry.

Honda has already said new tariffs on cars imported into the United States from Mexico could affect deliveries of thousands of vehicles, while billionaire Trump adviser Elon Musk said he was delaying construction of his new Tesla factory in Mexico.

It’s a development that hasn’t gone unnoticed in Beijing, where an editorial in the state-backed Global Times newspaper touted the “tremendous” potential for economic cooperation between China and Mexico. “If American politicians continue to put pressure on Mexico and try to undermine normal economic cooperation, this will certainly harm Mexico’s economic potential,” she said in October.

The impudence of the campaign

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Sheinbaum criticized Trump while he was on the campaign trail, calling his language “rude” in a post on X after he spoke dismissively of his previous negotiations with Mexico. She did not rush to reach him like the other leaders who headed directly to Mar-a-Lago.

While she encouraged Mexicans to “go to their consulates” amid concerns about his deportation plan, she also asked people to remain calm. She insisted that relations between the United States and Mexico would be “very good” and described their first phone call as “friendly.”

Once the two meet, “we will continue the high-level dialogue we have had on the issues of fentanyl, migration and the economy, which is fundamental to strengthening our economic relationship,” she said at a press conference in Mexico City on November 13. .

Sheinbaum officials tried to remind Trump that the USMCA was a good deal for him, too. After all, he signed it into law himself in 2020.

The former president of Mexico, known as AMLO, was a huge fan of Trump, and Sheinbaum is his chosen successor. While AMLO made the trip to meet Xi last year in San Francisco, their agreement to crack down on shipments of chemicals used to make illicit drugs was another attempt to appease the United States. It was, after all, nothing like the frequent meetings with his predecessor, Enrique Peña Nieto, and his celebration of China’s purchases of Mexican pork and tequila.

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The last time Trump threatened tariffs, in 2019, Mexico readily agreed to crack down on immigration. This year, its complex plan to round up migrants and bus them to southern Mexican states has helped reduce U.S.-Mexico border crossings by about 76% since December, according to data from the Mexican government. In April, it imposed tariffs on a range of goods coming from China, partly in response to US concerns about “dumping” of low-cost steel.

This makes Mexico think about how far it must go to appease its angry neighbor. Chinese companies also continued to set up shop in Mexico. Electric car maker BYD said this month it was evaluating sites in Mexico for a factory to serve the Latin American market, and other Chinese suppliers have also set up industrial parks near the US border.

Mexico has shunned one Chinese company, Ganfeng Lithium, after AMLO’s government nationalized lithium mining, depriving it of a project valued at more than $1 billion. But it has not yet stood in the way of other Chinese investments.

In general, Sheinbaum seems to want to avoid any kind of fireworks. Her team turned to data, which is what people have come to expect from the Mexican leader, who has a doctorate in energy engineering. She said earlier this month that Mexico was working on reports outlining the contributions of Mexicans abroad in areas such as medicine and construction, and another report on the benefits of the United States-Mexico-Canada Agreement for the United States — a methodical, if cheeky, strategy.

“We will always defend Mexico,” she said.

—With assistance from Sam Hornblower, Amy Stillman, and Carolina Milan.

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